Fame II subsidy cut from June 1

In a significant turn of events, the Indian government has slashed the number of electric two-wheelers eligible for subsidies under the FAME-II scheme from 989,000 to approximately 564,000 following an investigation by the Automotive Research Association of India (ARAI). The probe revealed that almost half of the vehicles sold under the scheme were backed by false localization claims, thereby violating the conditions of the subsidies which aimed to encourage local manufacturing rather than supporting imports.

The Ministry of Heavy Industries (MHI) withheld subsidies worth Rs 1,400 crore for over 400,000 electric two-wheelers sold under the scheme since April of the previous year. These units, initially included in the official tally, were removed following the inquiry. This move was instigated by a letter from the Society of Manufacturers of Electric Vehicles (SMEV), which accused the government of trying to cover up its shortfall in achieving its targets by incorporating units with withheld subsidies into the official count.

One company reportedly not adhering to the phased manufacturing plan, which prescribes an increase in local sourcing of parts, was Greaves Electric Mobility. The firm received a notice from the government to recover the subsidies paid, leading to a 10.3% drop in its stock value on the BSE.

In response to these irregularities, the government has realigned its focus from two- and three-wheelers to promoting electric buses. The budgetary allocation for bus promotion under the FAME-II scheme has been augmented by Rs 800 crore, reaching close to Rs 4,300 crore. Although the allocation for electric two-wheelers has been increased to around Rs 3,500 crore, the per-unit subsidy has been reduced. This adjustment is expected to cause a price surge in electric two-wheelers by Rs 25,000-40,000 from 1 June.

Despite these subsidy issues, Hero Electric, a leading electric two-wheeler manufacturer, has affirmed its commitment to not increasing the prices of its popular e-scooter models. The company is focused on promoting the adoption of electric two-wheelers and dispelling misconceptions about their cost of ownership. Hero Electric believes that affordability is a crucial factor in propelling the widespread adoption of electric vehicles and aims to encourage more consumers to transition to electric vehicles without additional costs. The company has recently launched new models including the Optima CX 5.0, Optima CX 2.0, and NYX.